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2007 Ruling 2007-0245281R3 - windup of income trust on sale of assets:3rd party

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104(21) 40

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Text of Severed Letter

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1.Can the capital gains realized by Fund on the disposition of assets to sole unitholder be allocated to unitholder and deductible under subsection 104(6)?

2. Will the sole unitholder realize a capital loss on the redemption of its units in the Fund after receiving the distributions of income and capital described under the first issue?

3. Will the Trustee be able to file the final return and make the necessary designations following the wind up of the Fund?

4. Will the various amendments to partnership agreement and trust deed to allow for transactions cause a windup or resettlement?

5. If the Fund was a SIFT trust in 2007, would the grandfathering rules in subsection 122.1(2) apply such that the Fund would not be subject to the SIFT rules in 2007

6. Where a note is distributed as payment, do the provisions of section 80 apply?

7. Where new debt is borrowed to invest in shares of a subsidiary that will acquire business and property, is the interest deductible?

8. Where the debt in the business is assumed, is the interest deductible?

9. Would the amendment to the Partnership Agreement in respect of the revised method of allocating Partnership income/loss result in a disposition of the interests held in the Partnership by the Fund and the general partner?

10. Would the same amendment to the Partnership agreement trigger the application of subsection 103 to redetermine the allocation of the income/loss of the Partnership?

11. Would subsection 98(3) apply on the winding-up of the Partnership, with the result that each partner would be entitled to make a paragraph 98(3)(c) designation?

12. Would the Partnership be a SIFT partnership in 2007 and if so, would the grandfathering rules in subsection 197(8) of the Act applied to the Partnership?

13. Will GAAR apply?

Position: 1. Yes, provided the amount is less than the trust's net taxable capital gains for the year.

2.The stop loss rules in 40(3.3), (3.4) and 107(1)(c) will not apply to reduce the amount of any capital loss otherwise realized on the redemption of the sole unitholder's units of the Fund.

3.Yes. 4. No.

5. The grandfathering rules will apply such that the Fund will not be subject to the SIFT rules in 2007. 6.No 7. Yes 8. Yes

9. Not in and of itself.

10. Not in and of itself.

11. Yes.

12. We did not conclude on this point, but did state that, to the extent that the Partnership is a SIFT Partnership, the subscription of certain additional units in the Fund would not, in and of itself, cause subsection 197(1) to apply to the Partnership for its XXXXXXXXXX taxation year.

13. No.

Reasons: 1. The net taxable capital gains will be made payable to the unitholder and all other amounts of income and other taxable capital gains will be made payable to former unitholders (in respect of distributions made before the sale of units to sole unitholder) or to the sole unitholder.

2. Following the redemption of the sole unitholder's units, the Fund will be wound up immediately and no further units will be issued such that the conditions in subsection 40(3.3) will not be met.

3. Filing the final tax return is one of the duties and obligations of the trustee.

4. Consistent with prior rulings.

5. The issue of new equity to the sole unitholder in exchange for the debt that was existing on October 31, 2006 does not qualify as growth for the purpose of the Normal Growth Guidelines.

6. Principal amount is the same.

7. Subject to the usual provisos.

8. Reading of 20(1)(c).

9-12. Our reading of the legislation.

13. Transactions are consistent with object and spirit of the provisions relied on.

XXXXXXXXXX 2007-024528

Attention: XXXXXXXXXX

XXXXXXXXXX, 2007

Dear Sirs:

Re: XXXXXXXXXX XXXXXXXXXX Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX as amended by your letter of XXXXXXXXXX in which you request an advance income tax ruling in respect of the above-noted taxpayer. We also acknowledge your correspondence of XXXXXXXXXX as well as the various emails and conversations, including the email of XXXXXXXXXX.

To the best of your knowledge and that of your clients, none of the issues involved in the ruling request is:

? in an earlier return of your clients or a related person,
? being considered by a tax services office or taxation center in connection with a previously filed tax return of your clients or a related person,
? under objection by your clients or a related person,
? before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or
? the subject of a ruling previously considered by the Directorate in respect of your clients or a related person.

You provided us with a copy of the following documents:

? the Declaration of Trust;
? the Partnership Agreement;
? the Support Agreement;
? the Circular; and
? the Notice of Variation and Extension.

This document is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

Except as otherwise noted, all statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated. The following terms have the meanings specified:

"Bidco" means XXXXXXXXXX, a taxable Canadian corporation that was incorporated in XXXXXXXXXX and, a wholly owned subsidiary of Subco;

"Circular" means the take-over bid Circular dated XXXXXXXXXX accompanying the Offer and forming part of the Offer;

"Compulsory Acquisition" means the forced acquisition of Units of Dissenting Unitholders in accordance with section XXXXXXXXXX of the Declaration of Trust;

"Declaration of Trust" means the declaration of trust governing the Fund dated

XXXXXXXXXX, as amended and restated as of XXXXXXXXXX, and as amended from time to time;

"Dissenting Unitholder" means a Unitholder who does not deposit his or her Units under an offer to purchase Units;

"Fund Third Party Debt" means the amount owed by the Fund to third party lenders immediately before the proposed transaction as described in paragraph 8 below;

"Fund" means XXXXXXXXXX an unincorporated, limited purpose trust established under the laws of the XXXXXXXXXX and its head office is located at XXXXXXXXXX;

"GPCo" means XXXXXXXXXX, the general partner of the Partnership;

"Lock-up Agreements" means the lock-up agreements each dated XXXXXXXXXX among Bidco, Subco and XXXXXXXXXX on the one hand, and among Bidco, Subco and XXXXXXXXXX on the other hand;

"Newco" means the one or more taxable Canadian corporations that the Partnership will create and wholly-own, and through which it will operate its business, as referred to in paragraph 30(a);

"Normal Growth Guidelines" means the Guidance Provided on "Normal Growth" for Income Trusts and Other Flow-Through Entities issued in a press release by the Department of Finance on December 15, 2006;

"Note" means the demand non-interest bearing promissory note that will be issued by Bidco to the Fund as partial consideration for the sale of the Fund's assets as described in paragraph 28(d) below;

XXXXXXXXXX;

"Notice to Dissenting Unitholders" means the notice that may be given under section XXXXXXXXXX of the Declaration of Trust to Dissenting Unitholders by a person making an offer to purchase Units in order to force a Compulsory Acquisition;

"Offer" means the offer dated XXXXXXXXXX made by Bidco (as amended by the Notice of Variation and Extension) to acquire all of the outstanding Units;

"Parent" means XXXXXXXXXX, a taxable Canadian corporation that was incorporated under and governed by the XXXXXXXXXX;

"Partnership Agreement" means the partnership agreement governing the Partnership dated XXXXXXXXXX, as amended and restated as of XXXXXXXXXX and as amended from time to time;

"Partnership" means XXXXXXXXXX, a limited partnership established under the laws of the XXXXXXXXXX that is governed by the Partnership Agreement and the Partnership is presently, and will continue to be, a "Canadian partnership", within the meaning of that term in subsection 102(1), until it ceases to exist;

"Residual Amount" means the amount equal to the difference between the face value of the Note and the amount of the capital gain made payable to Bidco as described in paragraph 28(e) below;

"SIFT Partnership" means a "specified investment flow-through partnership" as that term is defined in subsection 197(1);

"SIFT Trust" means a "specified investment flow-through trust" as that term is defined in subsection 122.1(1);

"Special Resolution" means a resolution adopted by Unitholders at a special meeting of Unitholders and passed by the affirmative votes of the holders of at least XXXXXXXXXX% of the Units represented at such meeting or approved in writing by holders of at least XXXXXXXXXX % of the votes represented by the Units entitled to vote on such resolution;

"Stock Exchange" means the XXXXXXXXXX;

"Subco New Third Party Debt" means the debt that Subco has incurred by borrowing from third party lenders in order, inter alia, to fund the purchase of the Units under the Offer.

"Support Agreement" means the acquisition and support agreement made as of XXXXXXXXXX among the Fund, Bidco and Subco which sets forth, among other things, the terms and conditions upon and subject to which Bidco has agreed to make the Offer;

"Trustees" means the trustees of the Fund;

"Unitholders" means holders of Units other than Bidco; and

"Units" means units of the Fund.

The relevant Tax Services Office for Parent is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX Tax Centre. The relevant Tax Services Office for the Fund is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. Parent is a public corporation XXXXXXXXXX Parent is the controlling shareholder of Subco. As of XXXXXXXXXX, Parent held, directly or indirectly, a XXXXXXXXXX% voting and equity interest in Subco. Parent will still control Subco when Bidco acquires the units in the Partnership as described in paragraph 28(d) below.

2. Subco's registered office is located at XXXXXXXXXX and its taxation year ends XXXXXXXXXX. The remaining XXXXXXXXXX% voting and equity interest in Subco as of XXXXXXXXXX was held by XXXXXXXXXX, a wholly-owned subsidiary of XXXXXXXXXX.

3. Bidco is a wholly-owned subsidiary of Subco. XXXXXXXXXX Bidco has not carried on any activities other than those in respect of its formation and relating to the Support Agreement and the Lock-up Agreements and the making of the Offer.

4. The Fund was established to invest in the XXXXXXXXXX through its ownership of all of the outstanding limited partnership units of the Partnership. It is (and was at the beginning of the XXXXXXXXXX) a unit trust, a mutual fund trust and a resident of Canada within the meaning of the Act. It is governed by the Declaration of Trust. The Units were listed on the Stock Exchange until the close of business on XXXXXXXXXX. The Fund made an initial public offering on XXXXXXXXXX. The Fund is not a deferred profit sharing plan, an employee profit sharing plan, a registered retirement income fund, or a trust governed by a registered retirement savings plan.

5. The authorized equity capital of the Fund consists of an unlimited number of Units. As at XXXXXXXXXX Units were issued and outstanding.

6. Each Unit represents an equal undivided beneficial interest in any distribution from the Fund and in any of the fund assets net of the fund liabilities or any other net assets of the Fund in the event of termination or winding-up of the Fund. Units rank among themselves equally and rateably without preference or priority. Each Unit entitles the holder to one vote at all meetings of the Unitholders.

7. Subject to the amendments described in paragraph 26 below and among other things, the Declaration of Trust provides that:

(a) the fiscal year of the Fund ends on XXXXXXXXXX of each year;

(b) the distributable cash flow as defined in the Declaration of Trust of the Fund must be determined on a monthly basis and such distributable cash flow includes most cash amounts received by the Fund during that period less certain expenses such as administrative expenses and interest expense;

(c) at the latest, on the last business day of such month, the Trustees must declare payable to the Unitholders of record on such date the distributable cash flow of the Fund for such month on a pro rata basis;

(d) subject to certain exceptions, the payment of such distributable cash flow must be made at the latest on the XXXXXXXXXX day of the following month;

(e) notwithstanding the foregoing, the total amount due and payable on XXXXXXXXXX of any year cannot be less than the amount necessary to ensure that the Fund will not be liable to pay income tax under Part I for the most recent taxation year of the Fund;

(f) in accordance with and to the extent permitted by the Act, the Trustees may make designations in respect of amounts payable to Unitholders for such amounts that the Trustees consider to be reasonable including, without limitation, designations relating to net taxable capital gains realized by the Fund;

(g) subject to certain exceptions, the provisions of the Declaration of Trust may only be amended by Special Resolution;

(h) the Trustees may not sell all or substantially all the assets of the Fund except with the approval of the Unitholders by Special Resolution; and

(i) if an offer is made for all of the outstanding Units and such offer is accepted by Unitholders representing at least 90% of the outstanding Units within XXXXXXXXXX days of the date of such offer, the person who has made such offer may force the Compulsory Acquisition of the Units that have not been deposited by Dissenting Unitholders by sending a Notice to Dissenting Unitholders within XXXXXXXXXX days after the date of termination of the offer and in any event within XXXXXXXXXX days after the date of the offer; and the Unitholders who receive such notice must then transfer their Units within XXXXXXXXXX days after receiving such Notice to Dissenting Unitholders and if a Dissenting Unitholder fails to comply with such notice, the person who made the offer may send to such Dissenting Unitholder a notice stating that his or her Units have been transferred to such person.

8. The outstanding debt to third party lenders of the Fund as of October 31, 2006 pursuant to the agreement executed between various third party lenders, the Fund and the Partnership dated XXXXXXXXXX that governs the Fund Third Party Debt was of $XXXXXXXXXX. The Fund Third Party Debt is a XXXXXXXXXX. The Fund Third Party Debt is non-revolving and amounts repaid may not be reborrowed and any such repayments are a permanent reduction of the Fund Third Party Debt. The Fund Third Party Debt is still fully outstanding.

9. GPCo and the Fund are respectively the general partner and the sole limited partner of the Partnership. The adjusted cost base of the limited partner interest held by the Fund in the Partnership is approximately $XXXXXXXXXX. The adjusted cost base of the general partner interest held by GPCo in the Partnership is nominal. The limited partner interest held by the Fund in the Partnership constitutes capital property to the Fund for the purposes of the Act. The general partner interest held by GPCo in the Partnership constitutes capital property to GPCo for the purposes of the Act. The Fund owned all the outstanding limited partnership units of the Partnership and GPCo owned all the outstanding general partnership units of the Partnership on October 31, 2006.

10. The Fund holds all of the shares of GPCo. The adjusted cost base of the shares of GPCo to the Fund and the paid-up capital of such shares is nominal. The shares of GPCo constitute capital property to the Fund for the purposes of the Act. The Fund owned all of the shares outstanding of GPCo on October 31, 2006.

11. GPCo is a corporation incorporated under the XXXXXXXXXX. As general partner of the Partnership, GPCo administers and manages the business of the Partnership.

12. XXXXXXXXXX.

13. As at XXXXXXXXXX , the undepreciated capital cost of the depreciable property of the Partnership and the cumulative eligible capital of the Partnership were respectively $XXXXXXXXXX and $XXXXXXXXXX.

14. Among other things, the Partnership Agreement provides that:

(a) the fiscal year of the Partnership ends on XXXXXXXXXX of each year;

(b) the distributable income of the Partnership must be determined on a monthly basis; such distributable income includes the amount of cash on hand of the Partnership less certain amounts;

(c) the distributable income of the Partnership must be distributed to the partners forthwith after such determination in the following manner and in the following order:

(i) an amount equal to the expenses incurred by the general partner in performing its duties as general partner must be distributed to the general partner,

(ii) an amount equal to the distributable income less any amount described in paragraph 14(c)(i) above and less any amount described in paragraph 14(c)(iii) below may be distributed to the limited partner(s), and

(iii) an amount equal to XXXXXXXXXX of each distribution described in paragraph 14(c)(ii) above, computed without regards to this subparagraph, must be distributed to the general partner;

(d) the aggregate taxable income or tax losses of the Partnership for a fiscal period must be allocated in accordance with paragraphs 14(e) to (f) below at the end of each fiscal period;

(e) the limited partner is allocated all taxable income or tax losses after giving effect to the amounts of taxable income allocated in accordance with paragraph 14(f) below; and

(f) the general partner is allocated taxable income equal to the aggregate of:

(i) distributions described in paragraph 14(c)(i) above whether in the relevant fiscal year or within XXXXXXXXXX days thereafter in respect of expenses incurred by it in the fiscal year; and

(ii) all amounts distributed in such period in accordance with paragraph 14(c)(iii) above.

15. In accordance with the Declaration of Trust, the Fund has been distributing the pro rata share of the distributable cash flow of the Fund each month to the Unitholders of record as of the last business day of that month. The Fund

paid its last monthly cash distribution (in the amount of $XXXXXXXXXX per Unit) on XXXXXXXXXX to Unitholders of record as at the close of business on XXXXXXXXXX in respect of the period from XXXXXXXXXX.

16. Such distributions have been funded with monthly distributions made by the Partnership to the Fund.

17. XXXXXXXXXX.

18. XXXXXXXXXX.

19. XXXXXXXXXX.

20. XXXXXXXXXX, Bidco was offering to acquire all of the outstanding Units for $XXXXXXXXXX per Unit in cash. On XXXXXXXXXX This represents an aggregate purchase price of $XXXXXXXXXX for all the Units outstanding on XXXXXXXXXX.

21. XXXXXXXXXX.

22. The Offer was subject to a number of conditions, including one that required that the number of Units deposited under the Offer constitute at least XXXXXXXXXX% of the Units outstanding as of the expiry time of the Offer.

23. On XXXXXXXXXX, Subco and the Fund announced that Unitholders holding in the aggregate XXXXXXXXXX Units, representing approximately XXXXXXXXXX% of the issued and outstanding Units, have tendered their Units under the Offer. The Offer provided, among other things, that the execution of the letter of transmittal provides Bidco with the power of attorney from and after the expiry time for the Offer to vote the Units deposited under the Offer to approve written Special Resolutions set forth at paragraph 26 below.

24. On XXXXXXXXXX, immediately following the take-up of all the Units deposited under the Offer, each of the Trustees other than XXXXXXXXXX submitted their resignations as Trustees effective at that time. Immediately following these resignations, Bidco, as attorney on behalf of all Unitholders who deposited their Units under the Offer, appointed each of XXXXXXXXXX as Trustees, to hold office, along with XXXXXXXXXX , until the close of the next annual and general meeting of the Unitholders.

25. On XXXXXXXXXX, Bidco acquired the Units not deposited under the Offer by sending a Notice to Dissenting Unitholders thereby exercising its right of Compulsory Acquisition. As a result, the Fund is now wholly-owned by Bidco. Accordingly, the Units were delisted from the Stock Exchange effective at the close of business on XXXXXXXXXX and, shortly thereafter, the Fund obtained appropriate orders to permit it to cease being a reporting issuer under the Canadian securities legislation. Bidco holds the Units as capital property.

26. The terms of the Offer provided that Unitholders who will be accepting the Offer irrevocably appoint Bidco as lawful agent to vote and execute any required documentation approving the following Special Resolutions, which were adopted on XXXXXXXXXX (the Declaration of Trust was amended accordingly on the same day):

(a) to amend section XXXXXXXXXX of the Declaration of Trust to provide that a Compulsory Acquisition may be effected if Bidco and its affiliates, after take up and payment of Units deposited under the Offer, hold at least XXXXXXXXXX% of the Units;

(b) to amend section XXXXXXXXXX of the Declaration of Trust to provide that Units held by Dissenting Unitholders will be deemed to have been transferred to Bidco immediately on the giving of the Notice to Dissenting Unitholders (as opposed to the 20-day period after the sending of such notice as described in paragraph 7(i) above) and that those Dissenting Unitholders will cease to have any rights as Unitholders from and after that time, other than the right to be paid the same consideration that Bidco would have paid them if they had tendered those Units to the Offer;

(c) to approve any Compulsory Acquisition that may be undertaken by Bidco under the Declaration of Trust as amended in accordance with the foregoing;

(d) to amend the Declaration of Trust to permit Bidco, notwithstanding anything to the contrary contained therein, to vote, execute and deliver any instruments of proxy, authorizations, requisitions, resolutions, consents or directions in respect of the Units taken up under the Offer, and authorizing Bidco to execute any such amendment to the Declaration of Trust in connection therewith;

(e) to direct the board of trustees of the Fund and all directors and officers of the Partnership, the Fund and its subsidiaries to cooperate in all respects with Bidco regarding the foregoing including in completing any Compulsory Acquisition undertaken by Bidco in accordance therewith; and

(f) to authorize any officer or director of Bidco or Subco, and any other persons designated by Bidco or Subco in writing, to execute and deliver all documents and do all acts or things, on behalf of the Fund or otherwise, as may be necessary or desirable to give effect to those Special Resolutions.

27. Under applicable law, the amendments to the Declaration of Trust described in paragraph 26 did not result in a dissolution or winding-up of the Fund.

Proposed Transactions

28. Bidco intends to proceed (and to cause the Fund and the Partnership to proceed) as follows and in the order set out below:

(a) Bidco will subscribe for additional Units of the Fund for an amount equal to the Fund Third Party Debt; including accrued interest, if any;

(b) in payment of the additional Units of the Fund subscribed by Bidco as described in paragraph 28(a) above, Bidco will assume the Fund Third Party Debt;

(c) prior to the sale of the assets of the Fund to Bidco, as described in paragraph 28(d) below, the allocation formula for the taxable income or tax losses of the Partnership found in section XXXXXXXXXX of the Partnership Agreement will be amended in order to provide that for the XXXXXXXXXX taxation year, after the allocation to the General Partner is made in accordance with paragraph 14(f) above, the taxable income or losses of the Partnership, computed from the beginning of fiscal year XXXXXXXXXX up to (but excluding) the day on which the Fund will sell its assets to Bidco, as described in paragraph 28(d) below (the "XXXXXXXXXX Pre-Amendment Period"), will be XXXXXXXXXX.
Under applicable law, these amendments will not result in a dissolution or winding-up of the Partnership;

(d) the Fund will sell all of its assets (XXXXXXXXXX), including its limited partner interest in the Partnership and the shares of GPCo, to Bidco for a price equal to the fair market value of those assets and Bidco will pay the price by assuming the liabilities of the Fund and issuing the Note to the Fund for the difference and the Fund will accept the Note as full and absolute payment of the difference in the purchase price;

(e) the Fund will declare the capital gain realized upon the disposition of its assets as described in paragraph 28(d) above payable to Bidco and will also declare the Residual Amount payable to Bidco;

(f) the Residual Amount will be comprised of a capital distribution and the allocation of any of the taxable income and other capital gains of the Fund for the XXXXXXXXXX taxation year not previously declared payable or distributed to the Unitholders as described in paragraph 31 below, so that the Fund will not be liable to pay income tax under Part I for the XXXXXXXXXX taxation year in accordance with the Declaration of Trust;

(g) the Fund will satisfy its obligation to distribute the amounts described in paragraph 28(e) and (f) above to Bidco by distributing the Note and upon the distribution of the Note to Bidco, the debt obligation payable by Bidco to the Fund evidenced by the Note will be extinguished as a matter of law;

(h) the Fund will redeem all of its Units for a price equal to the fair market value, which is expected to be a minimal amount, will not issue any new Units to any person following such redemption and will be immediately wound up; and
(i) all the steps described in this paragraph will take place in XXXXXXXXXX.

29. The Trustees will sign, execute and deliver any document necessary in order to wind up the Fund after the redemption of Units as described in paragraph 28(h).

30. Once the steps described in paragraph 28 above have been completed, Bidco intends to proceed (and to cause the Fund and the Partnership to proceed) as follows:

(a) the Partnership will incorporate Newco;

(b) the Partnership will transfer all its assets and liabilities to Newco; such transfer will take place on a tax-deferred basis in accordance with subsection 85(2); the Partnership and Newco will file a joint election within the limits set forth in subsection 85(1) and within the period mentioned in subsection 85(6);

(c) at least more than 60 days following the transfer by the Partnership of all of its assets and liabilities to Newco as described in paragraph 30(b) above, the Partnership will be wound up and all its property (i.e., the shares of Newco) will then be distributed on a pro rata basis to its partners, i.e. Bidco as limited partner and GPCo as general partner. As a result of such winding-up, each partner will have an undivided interest in each property of the Partnership (i.e., the shares of each Newco) that, when expressed as a percentage of all undivided interests in the property, is equal to the particular partner's undivided interest, when so expressed, in each other such property. In accordance with subsection 98(3), each partner in the Partnership (i.e., GPCo as general partner and Bidco as limited partner) will jointly elect in respect of the property in prescribed form and within the time referred to in subsection 96(4);

(d) GPCo will then be wound up into its sole shareholder, Bidco, with the result that the undivided interest held by GPCo in the former assets of the Partnership (including the shares of Newco) will be transferred to Bidco but the Partnership will not distribute the shares of Newco received as consideration for such transfers until it is wound up as described in paragraph 30(c) above; and
(e) Bidco may then decide to sell to third parties the shares of Newco. However, there are no plans for former Unitholders, either individually or collectively, to acquire, directly or indirectly, any of the shares or assets of Newco.

31. In accordance with the Declaration of Trust, at the end of the Fund's fiscal year ended XXXXXXXXXX, Unitholders who will have received distributions from the Fund in XXXXXXXXXX (including Unitholders who will sell their Units under the Offer) will be allocated the income of the Fund for its XXXXXXXXXX taxation year pursuant to section 104 up to the lesser of:

(i) the taxable income and tax losses of the Partnership computed from the beginning of fiscal year XXXXXXXXXX up to (but excluding) the day of the closing of the Offer (the "XXXXXXXXXX Pre-Closing Period"); for the purpose of such computation, the taxable income and tax losses for the XXXXXXXXXX Pre-Closing will be computed as if the Partnership had had a fiscal year end at the end of the Pre-Closing Period; and

(ii) the amount of the cash distributions made to them by the Fund in XXXXXXXXXX.

32. In its income tax return for the XXXXXXXXXX taxation year, the Fund will make the relevant designations under section 104 with respect to the income of the Fund for the XXXXXXXXXX taxation year such that the income declared payable to Bidco as described in paragraph 28(e) and (f) above will be income of Bidco for the XXXXXXXXXX taxation year under subsection 104(13) and the Trustees will make a designation under subsection 104(21) with respect to the net taxable capital gains of the Fund for the XXXXXXXXXX taxation year such that the portion attributable to the disposition of the assets of the Fund described in paragraph 28(e) and (f) above will be deemed to be a taxable capital gain of Bidco for the XXXXXXXXXX taxation year from the disposition by Bidco of capital property. No amounts were or will be designated by the Trustees under subsection 104(19) or (20) in respect of Bidco.

33. In order to fund the purchase of the Units under the Offer, Subco incurred the Subco New Third Party Debt prior to the acquisition of the Units. It is expected that the amount of the Subco New Third Party Debt will exceed the amount required to fund the acquisition of the Units and that part of the proceeds from the Subco New Third Party Debt will also be used by Subco for other purposes.

34. Out of the proceeds of the Subco New Third Party Debt, Subco subscribed for additional common shares of Bidco in order to fund the purchase by Bidco of the Units under the Offer.

Purpose of the Proposed Transactions

35. The purposes of the proposed transactions are as follows:

(a) to allow Bidco to dismantle the trust structure without triggering any undue tax liability, which structure is not efficient for various legal and commercial reasons; XXXXXXXXXX;

(b) to ensure that the Fund, and ultimately Bidco, will not be required to pay tax on amounts distributed to Unitholders for any period prior to the acquisition of Units by Bidco under the Offer;

(c) to transfer the business of the Partnership to one or more corporations, which is more in line with the business model and the corporate structure of Parent and Subco; and

(d) to allow Bidco to sell the shares of one or more of such corporations in a tax-efficient manner, taking into account the fact that Bidco will have an outside tax basis in the Units that will be greater than the inside tax basis that the Partnership will have in the assets of the Partnership.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, the proposed transactions are completed in the manner described above and there are no other transactions that may be relevant to the rulings given, our rulings are as follows:

A. The amendments to the Declaration of Trust as described in paragraph 26 above will not, in and by themselves, result in a disposition of the Units by Unitholders or in a disposition by the Fund of its property.

B. The amendment to the Partnership Agreement described in paragraph 28(c) above, will not, in and of itself, result in a disposition of the interests held in the Partnership by the Fund and by GPCo, or in a disposition by the Partnership of its property.

C. The amendment to the Partnership Agreement described in paragraph 28(c) above, will not, in and of itself, result in the application of subsections 103(1) and (1.1) to redetermine the allocation of the income of the Partnership.

D. Provided that the only reason why the Fund would cease to be a mutual fund trust following the completion of the Offer is the fact that it will no longer comply with the conditions relating to the number of unitholders, dispersal of its units and public trading of its units as prescribed under paragraph 132(6)(c) at that time, subsection 132(6.2) will deem the Fund to be a mutual fund trust throughout the XXXXXXXXXX calendar year.

E. Provided that the Fund makes a proper designation under subsection 104(21) in its return of income for the XXXXXXXXXX taxation year in respect of the net taxable capital gains of the Fund for XXXXXXXXXX, the portion of the net taxable capital gains that is made payable to Bidco in XXXXXXXXXX will be deemed to be a taxable capital gain of Bidco for the purposes specified in subsection 104(21) and the amount of the Fund's income for XXXXXXXXXX that is made payable to Bidco in XXXXXXXXXX will be deductible in computing the income of the Fund for XXXXXXXXXX under subsection 104(6) and will be included in computing the income of Bidco for XXXXXXXXXX under subsection 104(13).

F. The amount of the debt evidenced by the Note will not, upon the extinguishment of such debt as described in paragraph 28(g) above, result in a "forgiven amount" within the meaning of subsection 80(1).

G. Provided that the Fund makes a proper designation under subsection 104(21) in its return of income for the XXXXXXXXXX taxation year in respect of the net taxable capital gains of the Fund for XXXXXXXXXX, the portion of amount distributed to Bidco as described in paragraph 28(e) above that is equal to the capital gain realized by the Fund upon the sale of its assets to Bidco as described in paragraph 28(d) above will not reduce the adjusted cost base of the Units of Bidco under paragraph 53(2)(h).

H. To the extent that the amount paid by the Fund on the redemption of the Fund Units is less than the adjusted cost base of the Units to Bidco, subsections 40(3.3) and (3.4) and paragraph 107(1)(c) will not apply to any capital loss realized on the redemption.

I. Any document that the Fund is required to or may file under the Act or Regulations, including any return, form or notice filed by the Trustees on behalf of the Fund, including without limitation, a return required to be filed under subsection 150(1) and Part II of the Regulations after the redemption of all the Units of the Fund as described in paragraph 28(h) above will be considered to have been filed by the Fund on the date so filed by the Trustees.

J. On the winding-up of the Partnership, as described in paragraph 30(c) above, subsection 98(3) will apply with the result that each partner in the Partnership (i.e., GPCo as general partner and Bidco as limited partner) will be entitled to make a designation, within the limits set forth in paragraph 98(3)(c), in respect of their undivided interest in each property that was a capital property (other than depreciable property) of the Partnership and that is distributed to such partner.

K. Bidco's adjusted cost base of the additional Units of the Fund subscribed by Bidco as described in paragraph 28(a) above immediately after such subscription will be equal to the fair market value of the outstanding Fund Third Party Debt assumed by Bidco as described in paragraph 28(b) above.

L. The income of the Fund for the XXXXXXXXXX taxation year that is allocated and made payable to the Unitholders in the manner set out in paragraph 31 above will be deductible in computing the income of the Fund for the XXXXXXXXXX taxation year by reason of subsection 104(6), and will be required to be included in computing the income of such Unitholders for the XXXXXXXXXX taxation year by reason of subsection 104(13).

M. Subsection 104(7.1) will not apply to disallow the deduction by the Fund of the amount described in ruling L.

N. Provided that Subco has a legal obligation to pay interest on the Subco New Third Party Debt described in paragraphs 33 and 34 above, and that the common shares of Bidco continue to be held by Subco, Subco will be entitled pursuant to paragraph 20(1)(c) to deduct in computing its income for a taxation year the lesser of the interest paid or payable (depending on the method regularly followed by Subco in computing its income for the purposes of the Act) on that portion of the Subco New Third Party Debt used to acquire the Bidco common shares in respect of the taxation year, and a reasonable amount in respect thereof.

O. Pursuant to paragraph 210.1(b), the Fund will not be liable for tax under Part XII.2 for XXXXXXXXXX.

P. Fund will not be considered to have exceeded the Normal Growth Guidelines solely by reason of the transactions described in this ruling such that Fund's deduction for income made payable to the unitholders in XXXXXXXXXX will not be restricted by subparagraph 104(6)(b)(iv) solely as a result of such proposed transactions; and for greater certainty, and in accordance with the Normal Growth Guidelines, the subscription for additional Units by Bidco as described in paragraph 28(a) above will not be considered growth for the purpose of the Normal Growth Guidelines.

Q. To the extent that the Partnership is a SIFT Partnership, the subscription for additional Units of the Fund by Bidco as described in paragraph 28(a) above will not constitute growth for the Partnership for the purpose of paragraph 197(8)(b) and therefore the definition of SIFT Partnership in subsection 197(1) will not apply to the Partnership for the XXXXXXXXXX taxation year solely as a result of this subscription.

R. Provided that Bidco has a legal obligation to pay interest on the Fund Third Party Debt assumed by Bidco as described in paragraph 28(b) above, and provided that the interest on the Fund Third Party Debt was previously deductible and provided the Fund Third Party Debt continues to be used by Bidco for the purpose of earning income, Bidco will be entitled pursuant to paragraph 20(1)(c) to deduct in computing its income for a taxation year the lesser of

(i) the interest paid or payable (depending on the method regularly followed by Bidco in computing its income for the purposes of the Act) on the Fund Third Party Debt, and

(ii) a reasonable amount in respect thereof.

S. Subsection 245(2) will not apply to redetermine the tax consequences described above, solely as a result of the proposed transactions described above.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the Canada Revenue Agency provided that the proposed transactions are completed within six months of the date of this letter. These rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act. On June 22, 2007, legislation pertaining to specified investment flow-through entities received Royal Assent. As you are aware, the Canada Revenue Agency is considering the issue of whether subsidiary entities of, for example, an income trust, could be a SIFT Trust or SIFT Partnership, but has not yet reached a conclusion. Consequently nothing in this ruling should be viewed as providing any assurance that the Partnership is not currently a SIFT Partnership.

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